Big government gets bigger, offering more jobs

ARROYO GRANDE, Calif. (CBS.MW) --Wanna become a millionaire? Go work for Uncle Sam! Maybe it's too late for me, but not you. I passed on a job offer from HUD out of law school. And since then I've been ignoring Uncle Sam as a way to build a million-dollar nest egg.

But in recent months readers have been sending me info about how they can become millionaires working for Uncle Sam. For example, Jason, a 30-year-old government-agency staffer asked me about his asset allocation. He has 40 percent in the C Fund, 40 percent in the S Fund and 20 percent in the I Fund.

In the past I'd have ignored a request like Jason's. This time I got curious when I realized that Uncle Sam has 2.7 million employees -- and is expanding. And yet they live just fine with only five funds to pick from. Except I didn't have a clue what those alphabet C, S, I, G and F funds were.

Then a second and more important reason began staring me in the face: Big government really is getting bigger and bigger. And also becoming a bigger and bigger employer.

Now let's put this in context: Remember the skyrocketing federal deficits, in part triggered by multiple wars, Social Security and increased Medicare drugs benefits? The down side is that taxpayers will be screaming next year when taxes go up. But the optimistic view is that Uncle Sam will have to hire hundreds of thousands of new people. That makes the government a hot-jobs arena and a place to build a million-dollar nest egg.

That conclusion was reinforced by a recent Fortune article, "The $250 billion tax trap," by Bruce Bartlett, a former Reagan and George H. W. Bush staffer, currently a senior fellow at the National Center for Policy Analysis. Bartlett concludes "taxes are going up next year no matter who wins the presidency in November." They have to generate at least $250 billion in new revenues.

With $250 billion more to spend, Uncle Sam will be adding to his 2.7 million employees. So if you're one of the 100 million or more American taxpayers who resent having to pay higher taxes next year, or one of the 9 million currently out of work, and you'd like to retire a millionaire, apply for a job with Uncle Sam soon.

Big benefits working for Uncle Sam

Job seekers note: Uncle Sam offers some great retirement benefits, including forced autopilot savings systems, plus funds that are so good they put the rest of the mutual fund industry to shame.

Specifically, here are the two simple strategies that are virtually guaranteed to help you retire a millionaire if you work for Uncle Sam:

First, you are automatically enrolled in Uncle's Thrift Savings Plan (TSP) which forces you to do something most Americans don't do, namely, save for retirement. The failure to save is one of America's biggest problems. Very simple. No savings, no nest egg. Autopilot savings force you over that crucial hump.

Next, Uncle matches you dollar-for-dollar up to three percent of your pay (yep, 100 percent matching) and 50 cents on the dollar after that, up to 5 percent of salary. There is no match above that.

If you've got a $60,000 government job and contribute the maximum, Uncle Sam will match your first $1,800 with $1,800 and the next $1,200 with $600. That's $5,400 saved a year. Do that for 30 years at 10 percent and you'll be just short of retiring a millionaire.

For example, their operating expenses are only 0.10 percent, roughly half Vanguard's and substantially below the industry average of 1.60 for actively managed equity funds offered to the general public. Plus your choices are limited to five no-frills funds known only by a letter. You don't have to deal with all the 10,000 funds in the retail market, just five funds. Period.

Five funds

Since the information of the TSP.gov site was incomplete I've included the comparable Vanguard funds that track the same indexes so you can relate the government fund info to familiar benchmarks.

Notice something odd though: While the Vanguard and the government funds track the same index, and the government funds have an advantage with much lower operating expenses, the Vanguard funds appear to outperform or equal the domestic funds.

The F Fund. Tracks the Barclays U.S. Bond Index, or the Lehman Brothers U.S. Aggregate Bond Index and has earned an average of 6.9 percent annually the past 10 years. This is essentially the same fund as the Vanguard Total Bond Market Index Fund, which has averaged 7.02 percent the past decade.

The C Fund. Tracks Barclays Equity Index Fund, essentially the S&P 500. This is pretty much the same fund as the Vanguard 500 Index Fund. Both the C Fund and the Vanguard 500 are averaging 11.0 percent annually the past 10 years.

The S Fund. Tracks Barclays Extended Market Index Fund, essentially the Wilshire 4500 index. The 10-year returns of the S Fund were not available, but the Wilshire 4500 returned an annual average of 9.8 percent the past decade. The S Fund is the same as the Vanguard Extended Market Index Fund, which has returned an annual average of 10.37 the past ten years.

The I Fund. An international fund tracking the MSCI-EAFE index (Europe, Australia and Far East). Fund returns were not provided, but the EAFE index has averaged 4.4 percent annually the past 10 years. The I Fund is the same as the Vanguard Total International Stock Index Fund, which has averaged 2.3 percent since inception.

The G Fund. Invests in short-term U.S. Treasuries with the principal guaranteed. It is essentially a money market fund that's averaging 6.0 percent annually for 10 years.

If you simply allocated 20 percent of your money to each of these five funds your total portfolio returns would have averaged 8 percent the past decade. And if you assume you're a 35-year-old employee with $200,000 in assets today and you continue investing $700 in new money in your TSP allocation each month ($8,400 a year), you'll be a millionaire by age 59 with just your TSP investments, with inflation at 3 percent.

What about Jason, the 30-year-old government agency staffer? His asset allocation: He has 40 percent in the C Fund (S&P 500), 40 percent in the S Fund (Wilshire 4500) and 20 percent in the I-Fund (MSCI-EAFI international index). His returns would have averaged 8.6 percent annually the past decade. And under the same assumptions as above he'd be a millionaire at age 53, earlier if he had other income and assets.

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